Tax changes???

[SonomaCat]

Gary -- I definitely see where you are coming from in terms of the phased out deductions, limitations on capital losses, and every other way that the tax code starts to squeeze people once they hit about 100K in income. I would not mind seeing those things change, either. I guess the trick is finding a way to either cut the federal spending (vote Libertarian, people, it's the only way!) or finding other sources of income to make up for the lost revenue. There are definitely some very punitive provisions in the code that arguably hit a person who makes, say, $150K much harder than they hit someone who makes $150m. So, in a sense, we have just redefined "poor" and "rich" and shown that a progressive tax code make sense, but the cut-off for "rich" just needs to be moved up so it doesn't catch so much of the middle class.

I am sure a lot of poor people are lazy, as well as a good chunk of the middle class ... and a good chunk of the rich as well. I do agree, though, that our tax code shouldn't punish those people who are trying to run businesses. I am very pro-business when it comes to my tax philosophy. I particularly hate the capital loss limitation. In general, whatever the worst-case scenario might be is likely the right answer when doing a tax analysis (unless you structure it very carefully and figure out a work-around solution ... hence the need for bright guys like Grizlaw).

['93HonoluluCat]

A flat tax would dramatically increase taxes for poor people and dramatically lower taxes for rich people.

I am not offering opinions, I am speaking of facts from over 10 years of working in the tax profession.

I'm trying to antagonize you without reason, BAC, and I do see from where you're coming.

I also don't mean to discredit your knowledge in the area of your profession.

All that said, however, the richer folks in society should pay more--there we have no disagreement. I believe the vast majority of the richer folks, however, do find enough loopholes and tax shelters to avoid paying their "fair share." If everyone pays a simple 15% with no allowance for deductions, no one can say that any segment of society pays any more than any other segment of society. The conservatives are happy 'cause "they're gouging the poor folk" and the liberals are happy 'cause the rich aren't getting out of their fair share of tax burden. Where's the problem?

As far as use of government programs by the rich being greater than that of the poor, I simply don't buy it. Look how many programs there are for the financially challenged in society? Everything from programs as obvious as Welfare and WIC to the more subtle like Right Start--they all are programs chartered to help the poor.

[SonomaCat]

True, the more obvious spending programs do benefit the poor (and rightfully so -- if they need the help). The bigger picture, though, is that the programs for the poor weren't originally developed out of an altruistic desire to help poor people. They were developed during the Depression to prevent the country from falling into revolution. Revolution is good for poor people (or so they believe), but very, very bad for those who have wealth. So to stave off the chance of a populist uprising against the rich, many of the wealthy in America backed the New Deal out of self-interest (as I mentioned before, Joe Kennedy wasn't a liberal until he decided that if he didn't support all of this government spending, he likely would end up with nothing. He took the pragmatic route and decided that higher taxes on a lot were a lot better than lower taxes on nothing.)

Now to what extent that threat is no longer a concern because of these programs is subject to debate. If the progressive nature of our tax code was taken away today, and the tax code shifted to a flat system, would we once again need to worry about the threat of armed revolt? Maybe ... it's hard to tell. Maybe the uber-rich of today who still want tax breaks are just a bit too far removed from our history and don't realize why things are the way they are, and assume that everybody can, in a sense, "eat cake" if the tax burden is shifted.

Although I do have to disagree with the theory that a flat tax wouldn't severely tilt the scale in away from the rich and towards the poor. For people making a lot of money, they are definitely paying way more than 15% on their gross income. There just aren't many ways to shelter certain kinds of income. You can do some cute things, but that will only reduce tax -- you will still pay a lot if you make a lot. Where the best tax avoidance schemes are cooked up is in the area of estate tax planning, and not as much with income taxes. As Gary mentioned, once you get above a relatively low income level (above $150K or so), all of the deductions phase out, and you pretty much just get stuck paying a lot of taxes. If the flat tax of 15% was in its place, then these people would pay about half of what they do now. For those who make a LOT of money, their tax cut would likely be even higher than that.

Of course, as Grizlaw can tell you much more eloquently than I, the tax rates aren't even the confusing part of the tax code. All of the definitions surrounding income, deductions, etc. are where the challenges arise. It's just never going to be easy, because taxation is something people like to avoid, so the laws have to be complex to assure that people don't find ways around them.

['93HonoluluCat]

True, the more obvious spending programs do benefit the poor (and rightfully so -- if they need the help). The bigger picture, though, is that the programs for the poor weren't originally developed out of an altruistic desire to help poor people. They were developed during the Depression to prevent the country from falling into revolution. Revolution is good for poor people (or so they believe), but very, very bad for those who have wealth. So to stave off the chance of a populist uprising against the rich, many of the wealthy in America backed the New Deal out of self-interest (as I mentioned before, Joe Kennedy wasn't a liberal until he decided that if he didn't support all of this government spending, he likely would end up with nothing. He took the pragmatic route and decided that higher taxes on a lot were a lot better than lower taxes on nothing.)

Why not just simply give the administration of FDR some credit, BAC, and claim that the New Deal and myriad other "helps programs" were for the good of the American people, and the good of the country as a whole? Nothing I have read about the Depression and the creation of the New Deal has led me to believe otherwise. Perhaps you can provide a link to an article that purports the New Deal was a partisan effort to keep the bourgeois society safe from the proletariat? Rise up, workers of the world...

It's just never going to be easy, because taxation is something people like to avoid, so the laws have to be complex to assure that people don't find ways around them.

With that, I will absolutely agree. I know at my core that the flat tax will never work, but that doesn't mean I can't advocate for it, does it?

[SonomaCat]

I'm not sure that we are disagreeing on anything. I never said that the New Deal programs did not help poor people, or America as a whole (I'm not sure of the long term effects, quite honestly, so I hadn't opined one way or another). I also wasn't slighting FDR. I was just putting some historical context on what was going on in the 30s. I also never suggested that it was a partisan thing (quite the opposite, actually). I rather suggested that many rich folks crossed over from anti-tax to pro-tax stances out of a pragmatic desire to keep the country stable. Had these folks not crossed over, FDR would never have been elected, and none of his policies would have become law. He was a politician in America, and that means he needed a large segment of the wealthy people in his corner.

At the time, there were violent labor uprisings across the country, communism was growing in popularity among the blue collar folks, and the Russian revolution was not that far in the rear view mirror. Naturally, FDR and his fellow rich folks in power (as they generally are and generally will be) along with the business folks who put him in power (as money then, even more than now, meant political power) were nervous that a Marxist-style labor revolution could happen here ... and maybe it could have.

That gave rise to the idea of massive spending programs and public works projects to appease those elements. It was partly born out of altruism, but mostly out of pragmatism, as virtually all political decisions are.

Maybe the notion that communism and revolt were ever a threat in the US is unpalatable to a lot of people, so it isn't the emphasis of our history books (as our history books tend to leans towards heroic images of history and like to leave out a lot of the ugly and complicated parts), but it certainly was a huge factor of the day. One need go no further than checking out the popular art and literature of the day to realize that Marxism enjoyed a surprisingly high status in our culture in that era.

In my quick scannings of FDR and New Deal related websites, virtually everything that came up under the search were sites devoted to either lionizing or hating FDR and his programs, so they appear to be more of an outreach of modern partisan ideals than intellectual historical pursuits.

If you want to read more about that era in a more academic venue, I would recommend "A People's History of the United States" and "Lies my Teachers Told Me." Both go into that period of history in quite a bit of depth. A few of the New Deal websites that are historical mention the labor uprisings and FDR's concerns about them that led directly to accomodating legislative policy, but I didn't find one devoted to describing the entire backdrop of the period.

[BobCatFan]

We need a flat tax with ZERO deductions. Flat percenatge, I am so tired of the 5% richest people paying 85% of the tax. Do they get 10x the services? Does the fire truck get to their house 10x faster or does their street get plowed first. The only fair way is a flat tax plus you can more easily balance the budget because you can predit the tax base more accurately. BY the way I am not one of those 5%.

we need a graduated flat tax. A long these lines.
First $50,000 pay 5%
50-75000 pay 8%
75-100k pay 10%
100-250K pay 15%
250-500K pay 20%
500+ pay 25%

no deductions

I am not a govt tax man, so i do not know if these numbers will work, but this is my idea.

[BobCatFan]

If we taxed churches at 40% (since they are a business) that would reduce taxes for everyone.

I agree that, as a matter of policy, churches should probably be taxed, but do you really think most churches actually operate at a substantial profit? 40% of essentially zero is still essentially zero; I really doubt that imposing a tax on churches would have much of an impact on the fisc.

Churches would not pay any tax because they use every penny they have to keep the church running and to help the poor and disadvantaged. Trust me on this one, I have seen financial reports from churchs. They spend every penny they get each year. Churchs do make a profit.

[SonomaCat]

If we taxed churches at 40% (since they are a business) that would reduce taxes for everyone.

I agree that, as a matter of policy, churches should probably be taxed, but do you really think most churches actually operate at a substantial profit? 40% of essentially zero is still essentially zero; I really doubt that imposing a tax on churches would have much of an impact on the fisc.

Churches would not pay any tax because they use every penny they have to keep the church running and to help the poor and disadvantaged. Trust me on this one, I have seen financial reports from churchs. They spend every penny they get each year. Churchs do make a profit.

It might be possible that the selected financial reports for churches you have seen don't cover the full scope of churches in America. Maybe the local Lutheran church isn't turning over huge bucks in the collection plate or with the bake sales to recarpet the building, but that's not the only kind of church out there. There are a lot of churches that make a lot of money. The Mormons, for instance. I think they might have a few bucks socked away. There are also all of the TV churches that end up with guys in prison quite often for fraud. There is some positive cash flow there.

Isn't the Catholic church one of the wealthiest organizations in the world? I assume that wealth is stashed in Vatican City, though, so no country could tax it even if they wanted to.

I think Gary's point is that any church that is running a profit should pay taxes (and I am sure he is including property taxes, from which they are now exempt). I would say that they should be treated just like any other not for profit organization, which would exclude them from income tax to the extent that they are spending their cash on qualifying activities (helping the poor, etc.). That would cover all of the churches that you are aware of.

[SonomaCat]

We need a flat tax with ZERO deductions. Flat percenatge, I am so tired of the 5% richest people paying 85% of the tax. Do they get 10x the services? Does the fire truck get to their house 10x faster or does their street get plowed first. The only fair way is a flat tax plus you can more easily balance the budget because you can predit the tax base more accurately. BY the way I am not one of those 5%.

we need a graduated flat tax. A long these lines.
First $50,000 pay 5%
50-75000 pay 8%
75-100k pay 10%
100-250K pay 15%
250-500K pay 20%
500+ pay 25%

no deductions

I am not a govt tax man, so i do not know if these numbers will work, but this is my idea.

I am pretty sure that the term "flat tax" is used to describe a tax structure that is not graduated at all. On its face, though, I actually like your idea as it stands -- let's get rid of pubic subsidies for being married, having kids, buying houses, donating money to churches, paying off student loans, paying property taxes, and all of the rest of the things that I hardly benefit from to begin with, and lower my marginal tax rate to boot. Sounds like a winner to me personally.

Although, like I pointed out before, shifting the tax structure this way would be a windfall for residents of wealthy states and a death blow for residents of less wealthy states (like Montana).

(Although the rates listed above would bankrupt our country in about 10 minutes, and a more realistic model would probably have to increase the rates by at least 5% in all brackets to get us close to the revenue the Feds currently derive from individual income taxes).

['93HonoluluCat]

I never said that the New Deal programs did not help poor people, or America as a whole (I'm not sure of the long term effects, quite honestly, so I hadn't opined one way or another). I also wasn't slighting FDR. I was just putting some historical context on what was going on in the 30s.

At the time, there were violent labor uprisings across the country, communism was growing in popularity among the blue collar folks, and the Russian revolution was not that far in the rear view mirror. Naturally, FDR and his fellow rich folks in power (as they generally are and generally will be) along with the business folks who put him in power (as money then, even more than now, meant political power) were nervous that a Marxist-style labor revolution could happen here ... and maybe it could have.

That gave rise to the idea of massive spending programs and public works projects to appease those elements. It was partly born out of altruism, but mostly out of pragmatism, as virtually all political decisions are.

Maybe the notion that communism and revolt were ever a threat in the US is unpalatable to a lot of people, so it isn't the emphasis of our history books (as our history books tend to leans towards heroic images of history and like to leave out a lot of the ugly and complicated parts), but it certainly was a huge factor of the day. One need go no further than checking out the popular art and literature of the day to realize that Marxism enjoyed a surprisingly high status in our culture in that era.

In my quick scannings of FDR and New Deal related websites, virtually everything that came up under the search were sites devoted to either lionizing or hating FDR and his programs, so they appear to be more of an outreach of modern partisan ideals than intellectual historical pursuits.

So how are you disagreeing with my belief--and please correct me if I'm wrong--that you seem to think the New Deal was created by paranoid politicians in an attempt to keep civil order?

I tend to be less conspiritorial in my view of history, I guess...

[Grizlaw]

Isn't the Catholic church one of the wealthiest organizations in the world? I assume that wealth is stashed in Vatican City, though, so no country could tax it even if they wanted to.

According to the book Angels and Demons by Dan Brown, the Catholic Church's wealth consists mostly of priceless jewelry, artwork, etc. from early Christian times. Thus, while the church is wealthy, it may not have much "income" on a year to year basis.

And there's no reason to think that Dan Brown's book is anything other than 100% accurate.

[jagur1]

Well thats why they have EBay.

[Grizlaw]

I am pretty sure that the term "flat tax" is used to describe a tax structure that is not graduated at all. On its face, though, I actually like your idea as it stands -- let's get rid of pubic subsidies for being married, having kids, buying houses, donating money to churches, paying off student loans, paying property taxes, and all of the rest of the things that I hardly benefit from to begin with, and lower my marginal tax rate to boot. Sounds like a winner to me personally.

I can appreciate the arguments against so-called "social engineering" in the tax code (i.e. giving tax preferences to certain activities in order to encourage certain types of behavior, such as owning a home). I personally don't mind it; I would prefer that the government give tax breaks for such things rather than outright subsidizing the activities through government spending, but I can appreciate the philosophical argument that the tax code should be for imposing taxes and not for social engineering.

However, having said all that, whenever politicians start talking about the en masse elimination of tax deductions and credits from the code, I think there is an important point that never seems to get mentioned: the economic consequences of any such elimination of benefits.

Just as a matter of general economic principle, whenever a tax preference is granted in connection with the ownership of a particular asset, the value of the tax benefit should capitalize itself into the market value of the asset. Let's use the home mortgage interest deduction as an example, since it is familiar to everyone: the enactment of the home mortgage interest deduction should cause demand for home purchases to rise, thus leading to higher home values and higher prices. Granted, markets are imperfect, but theoretically, the amount of the increase in values should equal the present value of the future tax benefits that a purchaser would realize. (Did that make any sense? I'm not sure if I'm conveying this well.) (As a side note, this phenomenon raises an interesting question about who *really* benefits from the home mortgage interest deduction. Home purchasers? Theoretically not; if the deduction were repealed, home values would be less, so at least in theory, a purchaser would still be able to afford the same home he can afford with the deduction; the loss of the tax deduction should be offset by a corresponding decrease in the market price of the home.)

Anyway, my point is -- the likely economic impact of the repeal of the home mortgage interest deduction would be a substantial reduction in the values of residential real estate nationwide. I'm not an economist, so I won't speculate as to *how* substantial the reduction would be, but given that many families take considerable deductions for home mortgage interest currently, I would speculate that the average homeowning family's financial hit would be substantial.

Now, take that result, and then assume that *all* tax deductions and credits in the tax code were repealed simultaneously, and you get...complete economic chaos. Even if tax rates were reduced substantially in the process, the effect of removing currently existing tax preferences from our financial markets would probably cause pandemonium.

I guess my point is, although it might not be socially a *good* thing to have all of the tax preferences that we currently have in our tax code, those preferences are currently the status quo. Changing them would have consequences, and is not something that should be undertaken lightly.

--GL

[SonomaCat]

I never said that the New Deal programs did not help poor people, or America as a whole (I'm not sure of the long term effects, quite honestly, so I hadn't opined one way or another). I also wasn't slighting FDR. I was just putting some historical context on what was going on in the 30s.

At the time, there were violent labor uprisings across the country, communism was growing in popularity among the blue collar folks, and the Russian revolution was not that far in the rear view mirror. Naturally, FDR and his fellow rich folks in power (as they generally are and generally will be) along with the business folks who put him in power (as money then, even more than now, meant political power) were nervous that a Marxist-style labor revolution could happen here ... and maybe it could have.

That gave rise to the idea of massive spending programs and public works projects to appease those elements. It was partly born out of altruism, but mostly out of pragmatism, as virtually all political decisions are.

Maybe the notion that communism and revolt were ever a threat in the US is unpalatable to a lot of people, so it isn't the emphasis of our history books (as our history books tend to leans towards heroic images of history and like to leave out a lot of the ugly and complicated parts), but it certainly was a huge factor of the day. One need go no further than checking out the popular art and literature of the day to realize that Marxism enjoyed a surprisingly high status in our culture in that era.

In my quick scannings of FDR and New Deal related websites, virtually everything that came up under the search were sites devoted to either lionizing or hating FDR and his programs, so they appear to be more of an outreach of modern partisan ideals than intellectual historical pursuits.

So how are you disagreeing with my belief--and please correct me if I'm wrong--that you seem to think the New Deal was created by paranoid politicians in an attempt to keep civil order?

I tend to be less conspiritorial in my view of history, I guess...

Paranoid and conspiratorial ... no. Practical ... yes.

They were reacting to the forces that were present at the time, and something had to be done to keep civil order. I'm not understanding how that is even debatable, actually. The New Deal, even in the most basic tellings of history, was a reaction to the Depression. What was the worst case scenario from the Depression? A bunch of people peacefully starving to death? Certainly not. Had the government not reacted, there would have been a rebellion. That's just what happens in societies where the disparity between rich and poor is huge and the vast majority of the population is desperate.

Factor in the very well chronicled violent labor uprisings of the time and the pervasiveness of Marxist influences within the country at the time, and it all makes perfect sense. Desperate times call for desperate measures, which is why the sweeping changes caused by the New Deal were politically possible at that point in history.

Since I keep saying the same thing and you seem to be disagreeing with me (and I am having a one-way conversation), what is your view on the genesis of the New Deal? Once that is on the table, then we will be better able to compare and contrast what we are saying. As it is, I am struggling to figure out exactly in what way you are seeing things differently.

[SonomaCat]

Good point, Grizlaw. I was hoping my tongue in cheek responses to the suggestions of getting rid of all deductions would instill a similar thought process in the minds of the people making the suggestions, but I totally agree with your analysis.

And, from a stricly selfish standpoint, I guess I wouldn't mind the housing market taking a bit of a hit (so the price of a house around here could possibly meet me halfway) ... until the effects of that spread through the economy, killed consumer spending (due to millions suddenly being underwater on their mortgages), and pulled us into a depression.

All passionate discussions of sweeping tax law changes are fun and painless in theory, but get really ugly and complicated in actual practice. That's why we typically see minor tweaks (that generally promise grand results) as opposed to major changes to the code.

[SonomaCat]

Isn't the Catholic church one of the wealthiest organizations in the world? I assume that wealth is stashed in Vatican City, though, so no country could tax it even if they wanted to.

According to the book Angels and Demons by Dan Brown, the Catholic Church's wealth consists mostly of priceless jewelry, artwork, etc. from early Christian times. Thus, while the church is wealthy, it may not have much "income" on a year to year basis.

And there's no reason to think that Dan Brown's book is anything other than 100% accurate.

Touche on the Dan Brown reference. It doesn't get any more solid than that. However, in addition to the Jagur's good eBay mention, I seem to remember The Godfather Part 3 suggesting that the church had a lot of money tied up in corporate investments as well, which have to generate a lot of interest and dividends that would be taxable. The Vatican has its own large bank as well (per both The Da Vinci Code and The Godfather Part 3).

Now if we could just work a South Park or The Simpson's reference into here somewhere, we would have the perfect thread.

[Ponycat]

Screw you guys I'm going home.

[SonomaCat]

Exxxxcellent...

[grizbeer]

BAC I really don't think you could use the work of artist to reflect the mood of the nation. I doubt you could find an artist who wasn't at a minimum an socialist sympathizer, if not communist.

Saying the country was on the verge of revolution during the great depression because artists of the era portrayed is the same conclusion you could reach 70 years from now by reviewing the artists and actors of today. You can't draw the general public mood from looking at video clips of the Dixie Chicks, Susan Sarandon, Micheal Moore, and Sean Penn - yes they reflect the opinion of a certain part of the public, but not the entire public.

As far as why Kennedy supported the New Deal, how about this - Kennedy was completely out of the stock market before the crash in 29, and he was making all of his money from Hollywood, land sales, and government programs, so economically he would only gain these programs (in fact Hollywood was the one industry that soared during the Great Depression) Note also that for the most part Hollywood is largely exempted from labor laws that apply to other industries (2 industries still use child labor - entertainment and newspapers, and newspaper pay their child labor "contractors" well below minimum wage).

More important is that, as a life long, well entrenched democrat, he had no choice but to support a democrat. And most importantly he wanted his son to be president, and you can't go against programs for the masses (the same way we celebrate representative who bring money back to the state today) if you want to get elected. Keep in mind that Kennedy basically parted with FDR in 1940, well before the economy had returned to 1920's levels, although that had more to do with Kennedy's isolationist position than anything to do with the New Deal.

As for FDR, the New Deal was largely based on the economic principles of John Maynard Keynes. His general Theory of Employment, Interest, and Money was brand new in the 30's, and provided an economic model that appeared to answer the failings of classical economic thought, and for a President desperate to get the economy moving Keynes theory was the answer.

[Hell's Bells]

BAC I really don't think you could use the work of artist to reflect the mood of the nation. I doubt you could find an artist who wasn't at a minimum an socialist sympathizer, if not communist.

Saying the country was on the verge of revolution during the great depression because artists of the era portrayed is the same conclusion you could reach 70 years from now by reviewing the artists and actors of today. You can't draw the general public mood from looking at video clips of the Dixie Chicks, Susan Sarandon, Micheal Moore, and Sean Penn - yes they reflect the opinion of a certain part of the public, but not the entire public.

As far as why Kennedy supported the New Deal, how about this - Kennedy was completely out of the stock market before the crash in 29, and he was making all of his money from Hollywood, land sales, and government programs, so economically he would only gain these programs (in fact Hollywood was the one industry that soared during the Great Depression) Note also that for the most part Hollywood is largely exempted from labor laws that apply to other industries (2 industries still use child labor - entertainment and newspapers, and newspaper pay their child labor "contractors" well below minimum wage).

More important is that, as a life long, well entrenched democrat, he had no choice but to support a democrat. And most importantly he wanted his son to be president, and you can't go against programs for the masses (the same way we celebrate representative who bring money back to the state today) if you want to get elected. Keep in mind that Kennedy basically parted with FDR in 1940, well before the economy had returned to 1920's levels, although that had more to do with Kennedy's isolationist position than anything to do with the New Deal.

As for FDR, the New Deal was largely based on the economic principles of John Maynard Keynes. His general Theory of Employment, Interest, and Money was brand new in the 30's, and provided an economic model that appeared to answer the failings of classical economic thought, and for a President desperate to get the economy moving Keynes theory was the answer.

grizbeer i will have to add on to what you have typed

neither fdr noor the new deal was responsible for briging america out of the great depression. however, FDR was responsible for being a good wartime president, and the war was responsible for bringing america out of the depression, all those tanks, planes, and ships had to come from somewhere while americas best was overseas...